Nonlinearities in the CAPM: Evidence from Developed and Emerging Markets
Abstract
This paper examines the forecasting ability of the nonlinear specifications of the market model. We propose a conditional two‐moment market model with a time‐varying systematic covariance ( beta ) risk in the form of a mean reverting process of the state‐space model via the Kalman filter algorithm. In addition, we account for the systematic component of co‐skewness and co‐kurtosis by considering higher moments. The analysis is implemented using...
Paper Details
Title
Nonlinearities in the CAPM: Evidence from Developed and Emerging Markets
Published Date
Jan 25, 2016
Journal
Volume
36
Issue
8
Pages
867 - 897
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